Q1 2020 Management's Discussion & Analysis - For the three months ended March 31, 2020 - Altus Group
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Q1 2020
Management’s
Discussion &
Analysis
For the three months ended March 31, 2020
altusgroup.com
Altus Group Limited
Management’s Discussion & Analysis
March 31, 2020
Contents
Forward‐Looking Information 1
Changes in Significant Accounting Policies and Estimates 2
Non‐IFRS Measures 4
Overview of the Business 6
Strategy 8
Financial and Operating Highlights 11
Discussion of Operations 14
Quarter Ended March 31, 2020 14
Revenues and Adjusted EBITDA by Business Unit 17
Altus Analytics 18
Commercial Real Estate Consulting 20
Corporate Costs 21
Liquidity and Capital Resources 22
Reconciliation of Adjusted EBITDA to Profit (Loss) 26
Reconciliation of Adjusted Earnings (Loss) Per Share to Profit (Loss) 27
Summary of Quarterly Results 28
Share Data 29
Financial Instruments and Other Instruments 29
Contingencies 30
Disclosure Controls and Procedures and Internal Controls over Financial Reporting 31
Additional Information 32Management’s Discussion & Analysis
March 31, 2020
The following management’s discussion and analysis (“MD&A”) is intended to assist readers in understanding Altus
Group Limited’s consolidated business, its business environment, strategies, performance, outlook and applicable
risks. References to the “Company” or “Altus Group” are to the consolidated group of entities, and this should be read
in conjunction with our unaudited interim condensed consolidated financial statements and accompanying notes (the
“interim financial statements”) as at and for the quarter ended March 31, 2020, which have been prepared on the
basis of International Financial Reporting Standards (“IFRS”) and reported in Canadian dollars. Unless otherwise
indicated herein, references to “$” are to Canadian dollars and percentages are in comparison to the same period in
2019. Consolidated results presented (including restated comparative figures) exclude our Geomatics business which
has now been classified as discontinued operations.
Unless the context indicates otherwise, all references to “we”, “us”, “our” or similar terms refer to Altus Group, and,
as appropriate, our consolidated operations.
This MD&A is dated as of May 7, 2020.
Forward‐Looking Information
Certain information in this MD&A may constitute “forward‐looking information” within the meaning of
applicable securities legislation. All information contained in this MD&A, other than statements of current
and historical fact, is forward‐looking information. Forward‐looking information includes, but is not
limited to, the discussion of our business and operating initiatives, focuses and strategies, our expectations
of future performance for our various business units and our consolidated financial results, including the
guidance on financial expectations, and our expectations with respect to cash flows and liquidity.
Generally, forward‐looking information can be identified by use of words such as “may”, “will”, “expect”,
“believe”, “plan”, “would”, “could”, “remain” and other similar terminology. All of the forward‐looking
information in this MD&A is qualified by this cautionary statement.
Forward‐looking information is not, and cannot be, a guarantee of future results or events. Forward‐
looking information is based on, among other things, opinions, assumptions, estimates and analyses that,
while considered reasonable by us at the date the forward‐looking information is provided, inherently are
subject to significant risks, uncertainties, contingencies and other factors that may cause actual results,
performance or achievements, industry results or events to be materially different from those expressed or
implied by the forward‐looking information. The material factors or assumptions that we identified and
applied in drawing conclusions or making forecasts or projections set out in the forward‐looking
information include, but are not limited to: engagement and product pipeline opportunities in Altus
Analytics will result in associated definitive agreements; settlement volumes in the Property Tax business
will occur on a timely basis and that assessment authorities will process appeals in a manner consistent
with expectations; the successful execution of our business strategies; consistent and stable economic
conditions or conditions in the financial markets; consistent and stable legislation in the various countries
in which we operate; no disruptive changes in the technology environment; the opportunity to acquire
accretive businesses; the successful integration of acquired businesses; and the continued availability of
qualified professionals.
Inherent in the forward‐looking information are known and unknown risks, uncertainties and other factors
that could cause our actual results, performance or achievements, or industry results, to differ materially
from any results, performance or achievements expressed or implied by such forward‐looking information.
Those risks, uncertainties and other factors that could cause actual results to differ materially from the
1Management’s Discussion & Analysis
March 31, 2020
forward‐looking information include, but are not limited to: general state of the economy; any direct or
indirect negative potential impact or harm that COVID‐19 (coronavirus) may actually have on our business
or the business of our potential and current clients; a decline in the demand for our products and services
due to the COVID‐19 (coronavirus) pandemic; currency; financial performance; financial targets;
commercial real estate market; industry competition; acquisitions; cloud subscriptions transition; software
renewals; professional talent; third party information; enterprise transactions; new product introductions;
technological change; intellectual property; technology strategy; information technology governance and
security; product pipeline; property tax appeals; legislative and regulatory changes; fixed‐price and
contingency engagements; appraisal and appraisal management mandates; Canadian multi‐residential
market; customer concentration and loss of material clients; interest rates; credit; income tax matters; health
and safety hazards; contractual obligations; legal proceedings; insurance limits; ability to meet solvency
requirements to make dividend payments; leverage and financial covenants; share price; capital
investment; and issuance of additional common shares, as well as those described in our annual publicly
filed documents, including the Annual Information Form for the year ended December 31, 2019 (which are
available on SEDAR at www.sedar.com).
Given these risks, uncertainties and other factors, investors should not place undue reliance on forward‐
looking information as a prediction of actual results. The forward‐looking information reflects
management’s current expectations and beliefs regarding future events and operating performance and is
based on information currently available to management. Although we have attempted to identify
important factors that could cause actual results to differ materially from the forward‐looking information
contained herein, there are other factors that could cause results not to be as anticipated, estimated or
intended. The forward‐looking information contained herein is current as of the date of this MD&A and,
except as required under applicable law, we do not undertake to update or revise it to reflect new events
or circumstances. Additionally, we undertake no obligation to comment on analyses, expectations or
statements made by third parties in respect of Altus Group, our financial or operating results, or our
securities.
Certain information in this MD&A may be considered as “financial outlook” within the meaning of
applicable securities legislation. The purpose of this financial outlook is to provide readers with disclosure
regarding Altus Group’s reasonable expectations as to the anticipated results of its proposed business
activities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate
for other purposes.
Changes in Significant Accounting Policies and Estimates
In March 2020, the World Health Organization declared COVID‐19 (coronavirus) a global pandemic. The
continued spread of this contagious disease outbreak and related public health developments have
adversely affected workforces, economies, and financial markets globally, potentially leading to an
economic downturn and to legislative and regulatory changes that may impact our business and
operations. At this time, the duration and magnitude of the impact of the outbreak and its potential adverse
effects on our business or results of operations are uncertain and will depend on future developments.
Judgments made in the March 31, 2020 interim financial statements reflect management’s best estimates as
of the period end, taking into consideration the most significant judgments that may be directly impacted
by COVID‐19. The following are management’s significant estimates and assumptions that could be
impacted most by COVID‐19: revenue recognition and determination and allocation of the transaction
price, impairment of trade receivables and contract assets, and estimated impairment of goodwill.
2Management’s Discussion & Analysis
March 31, 2020
Discontinued Operations
A discontinued operation is a component of our business, with operations and cash flows that are
distinguishable from those of the rest of the Company, and which represents a separate major line of
business or geographical area of operations, and which is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively
for resale.
Classification as a discontinued operation occurs at the earlier of disposal or when the major line of business
or geographical operation meets the criteria to be classified as assets held for sale or distribution. When an
operation is classified as a discontinued operation, IFRS 5, Non‐current Assets Held for Sale and Discontinued
Operations, requires that the comparative statements of comprehensive income (loss) are re‐presented as if
the operation was discontinued from the start of the comparative year. As a result, our discontinued
operations are excluded from the profit (loss) from continuing operations and are presented as an amount,
net of tax, as profit (loss) from discontinued operations in the statements of comprehensive income (loss).
Furthermore, we have made the accounting policy choice to present net cash flows related to our
discontinued operations in the notes to the interim financial statements.
Adoption of Recent Accounting Pronouncements
Amendments to IFRS 3, Business Combinations
In October 2018, the IASB issued amendments to the guidance in IFRS 3, Business Combinations, which revise
the definition of a business for acquisition accounting purposes. To be considered a business, an acquisition
would have to include an input and a substantive process that together significantly contribute to the ability
to create outputs. The new guidance provides a framework to evaluate when an input and a substantive
process are present. To be considered a business without outputs, there will now need to be an organized
workforce present. Under the new standard, the changes to the definition of a business will likely result in
more acquisitions being accounted for as asset acquisitions.
The amendments to IFRS 3 are effective for business combinations and asset acquisitions for which the
acquisition date is on or after the first annual reporting periods beginning on or after January 1, 2020. We
will assess the impact of this standard on a case‐by‐case basis upon future acquisitions performed but do
not anticipate a material impact due to the nature and structure of our historical acquisitions.
Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform
In September 2019, the IASB issued amendments to IFRS 7, Financial Instruments and Disclosures, IFRS 9,
Financial Instruments, and IAS 39, Financial Instruments: Recognition and Measurement, to provide reliefs
applying to all hedging relationships that are directly affected by interest rate benchmark reform. A
hedging relationship is affected if the reform gives rise to uncertainties about the timing and/or amount of
benchmark‐based cash flows of the hedged item or hedging instrument.
These amendments are effective for annual periods beginning on or after January 1, 2020. The amendments
had no impact on our interim financial statements.
3Management’s Discussion & Analysis
March 31, 2020
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements, and IAS 8,
Accounting Policies, Changes in Accounting Estimates and Errors, to align the definition of “material” across
the standards and to clarify certain aspects of the definition. The new definition states that, “Information is
material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on the basis of those financial statements,
which provide financial information about a specific reporting entity.”
These amendments are effective for annual periods beginning on or after January 1, 2020. The amendments
to the definition of material did not have a significant impact on our interim financial statements nor is
there any expectation of a future impact.
Future Accounting Pronouncements
We have not early adopted any other standard, interpretation or amendment that has been issued but is
not yet effective.
Amendment to IAS 1: Classification of Liabilities as Current or Non‐Current
In January 2020, the IASB has issued an amendment to IAS 1, Presentation of Financial Statements, to provide
a more general approach to the presentation of liabilities as current or non‐current based on contractual
arrangements in place at the reporting date. These amendments:
specify that the rights and conditions existing at the end of the reporting period are relevant in
determining whether we have a right to defer settlement of a liability by at least twelve months;
provide that management’s expectations are not a relevant consideration as to whether we will
exercise our rights to defer settlement of a liability; and
clarify when a liability is considered settled.
The new guidance will be effective for annual periods starting on or after January 1, 2022 and is to be
applied retrospectively. We have not yet determined the impact of this standard on our financial
statements.
Non‐IFRS Measures
We use certain non‐IFRS measures as indicators of financial performance. Readers are cautioned that they
are not defined performance measures, and do not have any standardized meaning under IFRS and may
differ from similar computations as reported by other similar entities and, accordingly, may not be
comparable to financial measures as reported by those entities. We believe that these measures are useful
supplemental measures that may assist investors in assessing an investment in our shares and provide
more insight into our performance.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”),
represents profit (loss) from continuing operations before income taxes, adjusted for the effects of:
occupancy costs calculated on a similar basis prior to the adoption of IFRS 16, finance costs (income), net ‐
other, depreciation of property, plant and equipment and amortization of intangibles, depreciation of right‐
of‐use assets, finance costs (income), net ‐ leases, acquisition and related transition costs (income),
unrealized foreign exchange (gains) losses, (gains) losses on disposal of property, plant and equipment and
4Management’s Discussion & Analysis
March 31, 2020
intangibles, share of (profit) loss of associates, impairment charges, non‐cash Equity Compensation Plan
and Long‐Term Equity Incentive Plan costs, (gains) losses on equity derivatives net of mark‐to‐market
adjustments on related restricted share units (“RSUs”) and deferred share units (“DSUs”) being hedged,
(gains) losses on derivatives, restructuring costs (recovery), (gains) losses on investments, (gains) losses on
hedging transactions, and other costs or income of a non‐operating and/or non‐recurring nature.
Subsequent to the classification of the Geomatics business as a discontinued operation, the measurement
of Adjusted EBITDA has been modified to reflect an adjustment for profit (loss) from discontinued
operations.
Adjusted EBITDA margin represents the percentage factor of Adjusted EBITDA to revenues. Refer to page
26 for a reconciliation of Adjusted EBITDA to our interim financial statements.
Adjusted Earnings (Loss) per Share (“Adjusted EPS”), represents basic earnings (loss) per share from
continuing operations adjusted for the effects of: occupancy costs calculated on a similar basis prior to the
adoption of IFRS 16, depreciation of right‐of‐use assets, finance costs (income), net ‐ leases, amortization of
intangibles of acquired businesses, unrealized foreign exchange losses (gains), (gains) losses on disposal of
property, plant and equipment and intangibles, non‐cash Equity Compensation Plan and Long‐Term
Equity Incentive Plan costs, losses (gains) on equity derivatives net of mark‐to‐market adjustments on
related RSUs and DSUs being hedged, interest accretion on contingent consideration payables,
restructuring costs (recovery), losses (gains) on hedging transactions and interest expense (income) on
swaps, acquisition and related transition costs (income), losses (gains) on investments, share of (profit) loss
of associates, impairment charges, (gains) losses on derivatives, and other costs or income of a non‐
operating and/or non‐recurring nature. Subsequent to the classification of the Geomatics business as a
discontinued operation, the measurement of Adjusted EPS has been modified to reflect an adjustment for
profit (loss) from discontinued operations. The basic weighted average number of shares is adjusted for the
effects of weighted average number of restricted shares. All of the adjustments are made net of tax. Refer
to page 27 for a reconciliation of Adjusted EPS to our interim financial statements.
ARGUS Enterprise (“AE”) software maintenance retention rate, is calculated as a percentage of AE
software maintenance revenue retained upon renewal; it represents the percentage of the available renewal
opportunity in a fiscal period that renews, calculated on a dollar basis, excluding any growth in user count
or product expansion. We plan to present “ARGUS Enterprise (AE) software renewal rate” at the end of
2020 to also include the retention of subscription revenues as by that point we will have a meaningful
number of subscriptions which will be eligible for renewal.
Over Time revenues, a new metric we introduced in the first quarter of 2020 in replacement of our historic
reporting of “recurring revenues”, are consistent with IFRS 15, Revenue from Contracts with Customers. These
Over Time revenues are comprised of subscription revenues recognized on an over time basis in accordance
with IFRS 15, maintenance revenues from legacy perpetual licenses, and data subscription and Appraisal
Management revenues. Refer to page 18 for discussion of Over Time revenues. In 2019, approximately 75%
of Altus Analytics’ revenues were comprised of recurring revenues. Recurring revenues have represented
revenues related to software and data subscriptions where the contract value was recognized ratably over
the contract term, maintenance for perpetual licenses, and Appraisal Management contracts that depend
on our data analytics tools. The main difference in the new “Over Time revenues” compared to our historic
5Management’s Discussion & Analysis
March 31, 2020
“recurring revenue” disclosure is that it will not include the point in time revenue component recognized
up front for on‐premise subscription contracts recognized in accordance with IFRS 15.
Cloud adoption rate, a new metric we introduced in the first quarter of 2020 represents the percentage of
the total AE user base contracted on the ARGUS Cloud platform. It includes both new AE cloud users as
well as those who have migrated from our AE on‐premise software.
Overview of the Business
Altus Group Limited is a leading provider of software, data solutions and independent advisory services
to the global commercial real estate (“CRE”) industry. Our businesses, Altus Analytics and Commercial
Real Estate Consulting (“CRE Consulting”), reflect decades of experience, a range of expertise, and
technology‐enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize
value on their real estate investments. Headquartered in Canada, we have approximately 2,250* employees
around the world, with operations in North America, Europe and Asia Pacific. Our clients include many
of the world’s largest CRE industry participants. Altus Group pays a quarterly dividend of $0.15 per share
and our shares are traded on the Toronto Stock Exchange (“TSX”) under the symbol AIF.
We have two core reporting business segments ‐ Altus Analytics and CRE Consulting.
Our Geomatics business, previously one of our reporting business segments, has been reflected as
discontinued operations starting in the first quarter of 2020. On January 21, 2020, we agreed, subject to
definitive documentation, to combine our Geomatics business segment with WSP Global Inc.’s respective
geomatics focused business unit. The combined entity will be a leading geomatics firm in Canada, and
comprise approximately 750 employees in offices in Western Canada and Ontario. The transaction, which
is subject to finalization of definitive documentation, is expected to close in the second quarter of 2020.
Altus Analytics
Our Altus Analytics segment consists of revenues from software sold under the ARGUS brand and from
data solutions that are made available to clients through our Appraisal Management solutions, as well as
through data subscription products. Altus Analytics clients predominately consist of CRE asset and
investment management firms, including large owners, managers and investors of CRE assets and CRE
funds, as well as other CRE industry participants including service providers, brokers, and developers.
Our ARGUS software solutions are among the most recognized in the CRE industry and are sold globally.
Our product stack for global CRE asset and investment management comprises end‐to‐end integrated
software solutions on our cloud platform that provide visibility at the asset, portfolio and fund level to help
clients enhance performance of their CRE investments. Our flagship AE software is the leading global
solution for CRE valuation and portfolio management and is widely recognized as the industry property
valuation standard in key CRE markets. AE’s suite of functionality enables property valuation and cash
flow analysis, property budgeting and strategic planning, investment and fund structure forecasting,
dynamic reporting capabilities, and scenario sensitivity and risk analysis.
* The employee headcount shown above excludes approximately 250 employees from our Geomatics discontinued operations.
6Management’s Discussion & Analysis
March 31, 2020
Since the third quarter of 2019, we have been offering AE on a cloud platform while continuing to support
the on‐premise software. The cloud platform leverages the AE calculation engine and provides clients with
cloud‐based infrastructure; new analytics capabilities (such as benchmarking functionality); integrations
with other ARGUS products, storage, access and back‐up of AE files; and access to new ARGUS
applications (such as ARGUS Acquire, a deal management solution for CRE acquisitions, and ARGUS API,
an application programming interface). Other ARGUS products include ARGUS Taliance (cloud‐based
fund solutions for alternative investment firms), ARGUS Voyanta (a cloud‐based data management
solution), and ARGUS Developer and ARGUS EstateMaster (software for development feasibility analysis).
In addition to standard technology services related to education, training and implementation, we also
offer advisory and managed services for real estate organizations’ front‐to‐back‐office strategies, processes
and technology.
Fueled by our ARGUS software solutions, we provide information services on a global basis through our
Appraisal Management platform and data subscription products. Our global Appraisal Management
solutions combine data and analytics functionality with a managed service delivery to enable institutional
real estate investors to perform quarterly performance reviews, benchmarking and attribution analysis of
their portfolios. Through this offering we provide an end‐to‐end valuation management solution for our
institutional clients, providing independent oversight and expertise while leveraging our data analytics
platform. We primarily offer Appraisal Management solutions in the U.S., and we are expanding into
Europe and Asia Pacific. Our Appraisal Management clients primarily consist of open and closed real estate
funds, including large pension funds. Altus Analytics also includes a Canadian data subscription product,
Altus Data Studio, which provides comprehensive real estate information on the Canadian residential,
office, industrial and investment markets with unique data visualization capabilities. Our Canadian data
covers new homes, investment transactions and commercial market inventory in key markets, and
provides intelligence on the national housing market and consumer home buying and borrowing patterns.
Prior to 2020, the majority of our customers had licensed our AE software products on an on‐premise basis,
and had either paid on perpetual terms with ongoing maintenance, or on subscription terms. As of the start
of 2020, all of our Altus Analytics software products are being sold only on a subscription‐based model.
Our software subscription agreements vary in length between one to five years, and the subscription fee
primarily depends on the number of users and the applications deployed. We enjoy industry leading
retention rates for our AE software maintenance revenues, calculated as a percentage of maintenance
revenue retained upon renewal. In addition to software subscriptions, our software services are charged
primarily on a time and materials basis, billed and recognized monthly as delivered. The contractual terms
of our Appraisal Management agreements are generally for three years and pricing is primarily based on
the number of real estate assets on our platform, adjusted for frequency of valuations and complexity. We
enjoy very high contract renewal rates. Our Appraisal Management teams are also engaged from time to
time to perform due diligence assignments in connection with CRE transactions. Our Canadian data
products are sold on a subscription basis.
Commercial Real Estate Consulting
Our CRE Consulting segment consists of the Property Tax, and the Valuation and Cost Advisory business
units. Through our various practice areas, we are well‐equipped to serve clients with an end‐to‐end
solution that spans the life cycle of CRE assets ‐ from feasibility, development, acquisition, management
and disposition. Our professionals possess extensive industry, market and asset‐specific knowledge that
contribute to our proprietary internal data systems. We have long‐standing relationships with leading CRE
7Management’s Discussion & Analysis
March 31, 2020
market participants ‐ including owner operators, developers, financial institutions, and various CRE asset
holders and investors.
Our largest revenue contributor to CRE Consulting is our Property Tax business which operates in Canada,
the U.S. and the U.K. Our team of Property Tax professionals help clients minimize the tax burden and
reduce the cost of compliance. Our core real estate property tax services include assessment reviews,
management and appeals, as well as in the U.S., personal property and state and local tax advisory services.
The majority of our Property Tax revenues are derived on a contingency basis, representing a percentage
of the savings we achieve for our clients. As such, we recognize contingency revenues when settlements
are made, which in some cases could span multiple years. A smaller portion of our fees are based on time
and materials basis. Valuation services, which are predominantly provided in Canada, consist of appraisals
of real estate portfolios, valuation of properties for transactional purposes, due diligence and litigation and
economic consulting. Our Cost Advisory practice, offered in both the private and public sectors in Canada
and Asia Pacific, provides expert services in the areas of construction feasibility studies, budgeting, cost
and loan monitoring and project management. Pricing for our Valuation and Cost Advisory services is
primarily based on a fixed fee or time and materials basis. Given the strength of our brand, our
independence and quality of our work, we enjoy a high rate of client renewals across all of our CRE
Consulting businesses.
Strategy
Real estate investment allocation has steadily risen while CRE asset investment and ownership is becoming
more institutionalized, complex and globalized. After years of limited investment in technology, the CRE
market is increasingly embracing technology and better utilizing data to optimize assets and mitigate risks.
With the increased complexity of the CRE market, there is also a growing need for specialized expert
services which industry participants continue to outsource. Altus Group is at the forefront of this
opportunity, with analytics solutions and expert services that help clients navigate the complexities of the
CRE market to make better informed decisions and maximize the value of their real estate assets and
investments.
Through our market leading capabilities, we remain competitively positioned to capitalize on the growing
demand for a wide range of client needs in CRE technology, data and advisory solutions with a stable
revenue base across economic cycles. Our key competitive strengths in the marketplace are comprised of
our market‐leading “mission critical” software and data analytics solutions, unique industry expertise
across numerous asset classes and markets, our proprietary databases that contribute to successful client
outcomes, and the depth and diversity of our offerings. Our global scale, existing client relationships with
many of the world’s largest CRE companies, and independence from brokers and asset owners/investors
are also key differentiators that enhance our reputation.
Strategic Initiatives
Across the business, we continually identify opportunities to maximize the value of all of our business
assets. We have a disciplined approach to pursuing investments and prioritize opportunities that support
our longer‐term growth objectives and help us sustain market leadership in our core segments. While we
focus on enhancing every business (specifically through data and technology), we are overweighting
investment and innovation focus on our Altus Analytics business to leverage our global operating model
8Management’s Discussion & Analysis
March 31, 2020
and growth runway, while taking advantage of our strategic position with Property Tax to further enhance
value.
In 2020, our strategy is focused on the following initiatives:
Altus Analytics
Our long‐term objective is to transition Altus Analytics from a collection of high value point solutions to
an enterprise‐grade software and data analytics market leader that unifies valuation and asset management
capabilities into a single, cloud‐based platform that integrates numerous key workflows and enhances
data‐driven insights for the CRE industry. We believe this will drive substantial value for the CRE industry
and clients alike, while positioning Altus Group for long‐term profitable growth. To achieve this, we will
first continue to expand the global adoption of the AE cloud platform as the foundation for CRE asset and
investment management and data integration. Second, we will leverage our multi‐product technology
stack (existing and new future applications) for CRE asset and investment management clients who require
end‐to‐end enterprise solutions. Third, we will continue to lay the groundwork to capitalize on future
growth opportunities in CRE data and for products in markets adjacent to our core offerings.
Key priorities for Altus Analytics in 2020 include:
continuing execution of our “ARGUS Everywhere” go‐to‐market plan to drive existing and new
customer user and product growth, geographic expansion, and global/multi‐product enterprise
agreements;
continuing transition of our customers to cloud‐based subscription contracts, with a goal to migrate
the vast majority of our existing on‐premise customers on to the cloud platform by the end of 2023;
continuing product innovation, balanced between integration across all of our existing capabilities
and developing new cloud applications that support our strategy to move clients to a cloud
environment, while strategizing for new product opportunities in adjacent market verticals where
we currently have limited penetration and in data‐driven insights; and
continuing growth of our Appraisal Management solutions where favourable market trends
support organic growth in the U.S. and expansion into Europe and Asia Pacific, while increasingly
selling our Appraisal Management solutions as part of AE transactions.
Longer term, we believe our Altus Analytics business is uniquely positioned to capitalize on the
opportunity in CRE data and become a leading real estate information services provider. Our leading Altus
Analytics products collect and generate valuable and detailed CRE industry data on various asset classes
and for many major CRE markets in an automated environment. As ARGUS users increasingly move into
a cloud environment, the depth of the data strengthens. This provides us with a unique opportunity to use
this data to drive differentiation, generate analytics, launch new products and strengthen our Over Time
revenue streams. Our vision is to leverage our ARGUS cloud platform for data collection and integration
in a secure environment, through which we would aggregate ARGUS data from multiple organizations
based on our data rights, combine it with third‐party data through partnerships, and provide value‐added
data back through unique ARGUS workflows that enhance client value, while expanding the use of ARGUS
across organizations and providing us with new revenue streams.
9Management’s Discussion & Analysis
March 31, 2020
Property Tax
Our global Property Tax practice continues to represent an attractive growth area, driven both by solid
market fundamentals and our strong competitive position. Our global reach with national scale and
regional expertise, plus comprehensive databases on key CRE markets and expert knowledge make us a
leader in the industry. Our objective is to continue growing our market share and to scale our Property Tax
business into a leading, independent global property tax advisory practice that leverages technology and
data.
Key priorities for our Property Tax business in 2020 include:
continuing organic growth in our core markets driven by increased market share, operational
productivity, and higher value contingency contracts;
focusing on market expansion in key U.S. and U.K. markets by pursing organic growth initiatives
and financially accretive acquisitions when opportunities arise; and
driving digital transformation with technology and data to enhance client value while improving
internal efficiencies, modernizing our service delivery and data‐enabling business development.
While our Canadian, U.S. and U.K. Property Tax operations all share the same competitive advantages,
each national business has established unique strengths and specialties. Over the long term, we plan to
leverage the strengths of each national model across all geographies to become a leading property tax
advisor globally to the largest CRE owners as well as the mid‐market, and to efficiently leverage our
specialties in target asset classes.
10Management’s Discussion & Analysis
March 31, 2020
Financial and Operating Highlights
Selected Financial Information Quarter ended March 31,
In thousands of dollars, except for per share amounts 2020 2019 (1)
Revenues $ 131,256 $ 117,348
Canada 37% 36%
U.S. 39% 40%
Europe 18% 17%
Asia Pacific 6% 7%
Adjusted EBITDA $ 13,248 $ 13,557
Adjusted EBITDA margin 10.1% 11.6%
Profit (loss) for the period from continuing operations $ 1,757 $ 456
Profit (loss) for the period from discontinued operations $ (5,436) $ (891)
Profit (loss) for the period $ (3,679) $ (435)
Earnings (loss) per share:
Basic
Continuing operations $0.04 $0.01
Discontinued operations $(0.14) $(0.02)
Diluted
Continuing operations $0.04 $0.01
Discontinued operations $(0.13) $(0.02)
Adjusted $0.20 $0.23
Dividends declared per share $0.15 $0.15
(1) Comparative figures have been restated to reflect discontinued operations. Refer to Notes 4, 5 and 8 of the interim financial
statements.
Financial Highlights
Revenues were $131.3 million for the quarter ended March 31, 2020, up 11.9% or $14.0 million from
$117.3 million in the same period in 2019. Acquisitions represented 3.2% of the 11.9% revenue growth.
The impact of exchange rates was nominal. The revenue growth was led by a strong start to the year
from Property Tax and 17.3% growth in Over Time revenues in Altus Analytics. Property Tax revenues
increased by 17.7%, primarily due to double‐digit growth from both our U.K. and Canadian businesses.
Altus Analytics grew by 10.6% driven by strong growth in Over Time revenues from software
subscriptions and Appraisal Management solutions. In addition, Altus Analytics benefitted from the
acquisition of One11 Advisors, LLC (“One11”). Our Valuation and Cost Advisory businesses showed
modest growth.
Adjusted EBITDA was $13.2 million for the quarter ended March 31, 2020, down 2.3% or $0.4 million
from $13.6 million in the same period in 2019. Exchange rate movements against the Canadian dollar
benefitted Adjusted EBITDA by 0.5%. Earnings decreased slightly as the growth in revenues was offset
by higher compensation from headcount additions and other operating costs, including from the
acquisitions of One11 and Caruthers & Associates, Inc. (“Caruthers”) in July 2019.
11Management’s Discussion & Analysis
March 31, 2020
Profit (loss) from continuing operations for the quarter ended March 31, 2020 was $1.8 million, up
285.3% or $1.3 million from $0.5 million in the same period in 2019. In addition to the impacts on
Adjusted EBITDA as discussed above, for the quarter ended March 31, 2020, profit (loss) from
continuing operations improved as a result of lower amortization of intangibles, offset by higher
income tax expense on earnings generated. Profit (loss) from discontinued operations for the quarter
ended March 31, 2020 was $(5.4) million, down 510.1% or $4.5 million from $(0.9) million in the same
period in 2019 due mainly to the effects of $4.5 million of fair value adjustments subsequent to the
classification of our Geomatics business as a discontinued operation.
For the quarter ended March 31, 2020, earnings (loss) per share from continuing operations was $0.04,
basic and diluted, as compared to $0.01, basic and diluted, in the same period in 2019.
For the quarter ended March 31, 2020, Adjusted EPS was $0.20, down 13.0% from $0.23 in the same
period in 2019.
We returned $6.1 million to shareholders in the quarter through quarterly dividends of $0.15 per
common share.
As at March 31, 2020, our bank debt under our recently amended bank credit facilities was $176.1
million, representing a funded debt to EBITDA leverage ratio of 1.85 times (compared to 1.49 times as
at December 31, 2019), well below our maximum ratio of 4.00 times. As at March 31, 2020, cash and
cash equivalents was $71.2 million (compared to $60.3 million as at December 31, 2019). For further
discussion of the recent amendment and its impact on the interim financial statements, please refer to
the “Liquidity and Capital Resources” section beginning on page 22 of this MD&A and Note 12 ‐
Borrowings in the notes to the interim financial statements.
Operating Highlights
Geomatics Spin‐Off
On January 21, 2020, we agreed, subject to definitive documentation, to combine our Geomatics business
segment with WSP Global Inc.’s respective geomatics‐focused business unit. The combined entity will be a
leading geomatics firm in Canada, and comprise approximately 750 employees in offices in Western
Canada and Ontario. The transaction, which is subject to finalization of definitive documentation, is
expected to close in the second quarter of 2020 and is presented as discontinued operations starting in the
first quarter of 2020.
Altus Data Studio Launch
On February 19, 2020, we announced the launch of Altus Data Studio for our Canadian clients, which
combined our legacy RealNet and Altus InSite products into one core platform with significant
enhancements to the user experience and introduction of robust data visualization capabilities for our
comprehensive coverage on the Canadian residential, office, industrial and CRE investment markets.
Amendment to Credit Facilities
On March 24, 2020, we amended and expanded our bank credit facilities to further strengthen our financial
and liquidity position. The amended credit facilities increase our borrowing capacity to $275 million from
$200 million, with certain provisions that allow us to further increase the limit to $350 million. The amended
12Management’s Discussion & Analysis
March 31, 2020
agreement extends the term by three years expiring March 24, 2023, with an additional two‐year extension
at our option. The other significant amendment is that the bank credit facilities are moving to an unsecured
structure. For further discussion of the amendment and its impact on the interim financial statements,
please refer to the “Liquidity and Capital Resources” section beginning on page 22 of this MD&A and Note
12 ‐ Borrowings in the notes to the interim financial statements.
Operating Highlights ‐ Events After the Reporting Period
Long‐Term Equity Incentive Plan revision
On May 6, 2020, our shareholders approved a resolution to increase the number of authorized common
shares to be reserved for issuance under our Long‐Term Equity Incentive Plan and to ratify the grant of
awards made under it to executives and key employees. The resolution increases the maximum number of
common shares reserved for issuance by 1,850,000 to 4,075,000.
13Management’s Discussion & Analysis
March 31, 2020
Discussion of Operations
Quarter Ended March 31, 2020
Quarter ended March 31,
In thousands of dollars 2020 2019 (1)
Revenues $ 131,256 $ 117,348
Expenses
Employee compensation 88,355 79,552
Occupancy 2,071 1,619
Office and other operating 26,882 21,657
Depreciation of right‐of‐use assets 2,872 3,276
Depreciation and amortization 7,717 9,416
Acquisition and related transition costs (income) (1,176) (18)
Restructuring costs (recovery) (25) ‐
(Gain) loss on investments (125) (107)
Finance costs (income), net ‐ leases 660 687
Finance costs (income), net ‐ other 1,507 1,650
Profit (loss) from continuing operations before income taxes 2,518 (384)
Income tax expense (recovery) 761 (840)
Profit (loss) for the period from continuing operations $ 1,757 $ 456
Profit (loss) for the period from discontinued operations (5,436) (891)
Profit (loss) for the period attributable to shareholders $ (3,679) $ (435)
(1) Comparative figures have been restated to reflect discontinued operations. Refer to Notes 4, 5 and 8 of the interim financial
statements.
Revenues
Revenues were $131.3 million for the quarter ended March 31, 2020, up 11.9% or $14.0 million from $117.3
million in the same period in 2019. Acquisitions represented 3.2% of the 11.9% revenue growth. The impact
of exchange rates was nominal. The increase in revenues for the quarter was driven by a strong start to the
year from our Property Tax business and strong growth in Over Time revenues in Altus Analytics. Property
Tax performance benefitted from increased case settlements in the U.K. and in Canada. Altus Analytics
revenue growth was driven by a 17.3% growth in Over Time revenues and acquisitive growth from the
acquisition of One11. Our Valuation and Cost Advisory businesses grew modestly.
Employee Compensation
Employee compensation was $88.4 million for the quarter ended March 31, 2020, up 11.1% or $8.8 million
from $79.6 million in the same period in 2019. For the quarter ended March 31, 2020, the increase in
compensation was mainly due to headcount additions within Altus Analytics, Property Tax, and from the
One11 and Caruthers acquisitions, as well as losses on equity hedges related to our share‐based
compensation. For the quarter ended March 31, 2020, employee compensation as a percentage of revenues
was 67.3% and remained comparable to 67.8% in the same period in 2019.
14Management’s Discussion & Analysis
March 31, 2020
Occupancy
Occupancy was $2.1 million for the quarter ended March 31, 2020, up 27.9% or $0.5 million from $1.6
million in the same period in 2019. For the quarter ended March 31, 2020, the impacts of IFRS 16 decreased
occupancy costs by $3.0 million, and the remaining amounts recognized in occupancy costs pertain to short‐
term leases, low‐value assets, and variable lease payments. Without the impact of IFRS 16, occupancy costs
for the quarter ended March 31, 2020 increased slightly due to acquisitions and increased space needs for
Altus Analytics. For the quarter ended March 31, 2020, occupancy as a percentage of revenues was 1.6%,
as compared to 1.4% in the same period in 2019. Without the impact of IFRS 16, occupancy as a percentage
of revenues would have been 3.9% for the quarter ended March 31, 2020, consistent with the same period
in 2019.
Office and Other Operating Costs
Office and other operating costs were $26.9 million for the quarter ended March 31, 2020, up 24.1% or $5.2
million from $21.7 million in the same period in 2019. For the quarter ended March 31, 2020, the increase
in expenses is primarily from acquisitions, subcontractor disbursements for client projects and additional
expenditures for corporate software subscriptions and professional fees related to strategic initiatives. For
the quarter ended March 31, 2020, office and other operating costs as a percentage of revenues was 20.5%,
as compared to 18.5% in the same period in 2019.
Depreciation of Right‐of‐Use Assets
Depreciation of right‐of‐use assets was $2.9 million for the quarter ended March 31, 2020, as compared to
$3.3 million in the same period in 2019. The decrease is primarily due to old capital leases for equipment
expiring during 2019.
Depreciation and Amortization
Depreciation and amortization was $7.7 million for the quarter ended March 31, 2020, as compared to $9.4
million in the same period in 2019. For the quarter ended March 31, 2020, the decrease is mainly due to the
completion of the amortization period for some acquisition‐related intangibles.
Acquisition and Related Transition Costs (Income)
Acquisition and related transition costs (income) were $(1.2) million for the quarter ended March 31, 2020,
as compared to $nil in the same period in 2019. This was mainly due to post‐acquisition adjustments for
contingent consideration payables on historical acquisitions.
Restructuring Costs (Recovery)
Restructuring costs (recovery) were nominal for the quarter ended March 31, 2020, as compared to $nil in
the same period in 2019.
(Gain) Loss on Investments
(Gain) loss on investments was $(0.1) million for the quarter ended March 31, 2020, consistent with the
same period in 2019. The amount represents changes in fair value of our investments in partnerships.
15Management’s Discussion & Analysis
March 31, 2020
Finance Costs (Income), Net
Quarter ended March 31,
In thousands of dollars 2020 2019 (1) % Change
Interest on borrowings $ 1,325 $ 1,280 3.5%
Interest on lease liabilities 660 687 (3.9%)
Unwinding of discounts 63 175 (64.0%)
Change in fair value of interest rate swaps 154 310 (50.3%)
Finance income (35) (115) (69.6%)
Finance costs (income), net $ 2,167 $ 2,337 (7.3%)
(1) Comparative figures have been restated to reflect discontinued operations. Refer to Notes 4, 5 and 8 of the interim financial
statements.
Finance costs (income), net for the quarter ended March 31, 2020 was $2.2 million, down 7.3% or $0.1 million
from $2.3 million in the same period in 2019. Our finance costs decreased mainly due to the lower
unwinding of discounts charge for acquisition‐related contingent consideration payables paid during the
fourth quarter of 2019 and first quarter of 2020, in addition to the lower ongoing mark‐to‐market change in
fair value recognized in relation to our $65.0 million interest rate swap.
Income Tax Expense (Recovery)
Income tax expense (recovery) for the quarter ended March 31, 2020 was $0.8 million, as compared to $(0.8)
million in the same period in 2019. The increase was mainly due to higher profit (loss) before income tax
from our business operations.
Profit (Loss) from Continuing Operations
Profit (loss) from continuing operations for the quarter ended March 31, 2020 was $1.8 million and $0.04
per share, basic and diluted, as compared to $0.5 million and $0.01 per share, basic and diluted, in the same
period in 2019.
Profit (Loss) from Discontinued Operations
Profit (loss) from discontinued operations for the quarter ended March 31, 2020 was $(5.4) million and
$(0.14) per share, basic and $(0.13) per share, diluted, as compared to $(0.9) million and $(0.02) per share,
basic and diluted, in the same period in 2019. This was due mainly to the effects of $4.5 million of fair value
adjustments subsequent to the classification of our Geomatics business as a discontinued operation.
Profit (Loss)
Profit (loss) for the quarter ended March 31, 2020 was $(3.7) million and $(0.09) per share, basic and diluted,
as compared to $(0.4) million and $(0.01) per share, basic and diluted, in the same period in 2019.
16Management’s Discussion & Analysis
March 31, 2020
Revenues and Adjusted EBITDA by Business Unit
Revenues Quarter ended March 31,
In thousands of dollars 2020 2019 (1) % Change
Altus Analytics $ 51,719 $ 46,781 10.6%
Commercial Real Estate Consulting 79,611 70,673 12.6%
Intercompany eliminations (74) (106) 30.2%
Total $ 131,256 $ 117,348 11.9%
(1) Comparative figures have been restated to reflect discontinued operations. Refer to Notes 4, 5 and 8 of the interim financial
statements.
Adjusted EBITDA Quarter ended March 31,
In thousands of dollars 2020 2019 (1) % Change
Altus Analytics $ 9,272 $ 9,821 (5.6%)
Commercial Real Estate Consulting 13,341 12,098 10.3%
Corporate (9,365) (8,362) (12.0%)
Total $ 13,248 $ 13,557 (2.3%)
(1) Comparative figures have been restated to reflect discontinued operations. Refer to Notes 4, 5 and 8 of the interim financial
statements.
Revenue Contribution:
17Management’s Discussion & Analysis
March 31, 2020
Altus Analytics
Quarter ended March 31,
In thousands of dollars 2020 2019 % Change
Revenues $ 51,719 $ 46,781 10.6%
Adjusted EBITDA $ 9,272 $ 9,821 (5.6%)
Adjusted EBITDA Margin 17.9% 21.0%
Selected Metrics (1)
Over Time revenues (2) $ 40,083 $ 34,174 17.3%
AE software maintenance retention rate 96% 96%
Geographical revenue split
North America 82% 81%
International 18% 19%
Cloud adoption rate 6% n/a
(1) Refer to pages 5 and 6 of this MD&A for definitions of the Selected Metrics presented above.
(2) As Over Time revenues are being introduced in the first quarter of 2020, for a comparative view, Altus Analytics’ 2019 Over Time
revenues, consistent with IFRS 15, were $36.2 million, $36.8 million, and $38.8 million in the second, third, and fourth quarters of
2019, respectively.
Quarterly Discussion
Revenues were $51.7 million for the quarter ended March 31, 2020, up 10.6% or $4.9 million from $46.8
million in the same period in 2019. The acquisition of One11 represented 7.3% of the 10.6% revenue growth.
Movements in the exchange rate against the Canadian dollar benefitted revenues by 0.3%.
Over Time revenues, as described above in the “Overview of the Business” section, were $40.1 million for
the quarter ended March 31, 2020, up 17.3% or $5.9 million from $34.2 million in the same period in 2019.
Altus Analytics revenue growth during the quarter was driven by strong growth in Over Time revenues
and the acquisition of One11. Over Time revenues were driven by the higher mix of subscription sales in
the second half of 2019 and the first quarter of 2020, sustained growth from our Appraisal Management
solutions, and steady maintenance revenues supported by industry leading retention rates for our flagship
AE product. As of the first quarter, we fully transitioned to a subscription license model which continued
to benefit from add‐on sales to existing customers, new license sales and cloud migrations. The global
COVID‐19 pandemic had minimal impact on our first quarter performance, although towards the end of
March we saw a modest impact on our inside sales volumes focused on the small‐to‐medium (“SMB”)
businesses, and to our non‐recurring software services activity levels as customers around the world began
to transition to work from home. Our transition to AE cloud subscriptions progressed well and was on plan
during the quarter, with positive momentum of migrating existing customers from the on‐premise product
and selling AE cloud to new customers. As at the end of the first quarter, 6% of our total AE user base had
been contracted on ARGUS Cloud, in line with the expectations that formed our long‐term aspirational
goal.
Adjusted EBITDA was $9.3 million for the quarter ended March 31, 2020, down 5.6% or $0.5 million from
$9.8 million in the same period in 2019. Adjusted EBITDA was impacted by a higher level of expenses
compared to the prior year, notably software consulting expenditures, including the impact of the One11
18Management’s Discussion & Analysis
March 31, 2020
acquisition. Changes in foreign exchange impacted Adjusted EBITDA by 0.5%.
Outlook
Our Altus Analytics business continues to represent an attractive growth area, supported by favourable
market trends of growing global demand for CRE‐related technology and data solutions. Our Altus
Analytics business continues to be well positioned to deliver year over year revenue growth in 2020 as it
continues its revenue model shift to a subscription‐based license model, notwithstanding the
macroeconomic uncertainty and business impact brought on by the COVID‐19 pandemic. We also remain
on track with our aspirational long‐term goal to achieve Altus Analytics revenues of $400 million for full
year 2023, with an associated Adjusted EBITDA margin at over 30%.
In 2020, we expect to capture incremental revenues by expanding existing customer wallet share, gaining
new customer wins and furthering geographic expansion into Europe and Asia Pacific for both our
software and Appraisal Management solutions. Increasing the volume and value of enterprise transactions
for multi‐product and/or global deals with our top 200 clients remains a strategic focus and should provide
us with enhanced revenue growth.
With over 77% of our revenues coming from Over Time revenue streams, Altus Analytics is stable and
advantageously positioned to navigate the challenges brought on by the COVID‐19 pandemic. Our Over
Time revenue base is supported by industry leading retention rates and multi‐year contracts, and the
“mission critical” differentiation of our solutions now more than ever help clients navigate the unique
COVID‐19 related challenges in CRE.
Our strategy of transitioning our client base to the AE cloud‐based subscription solution remains on track.
As our cloud solution offers improved collaboration capabilities that are increasingly required for those
working remotely during the pandemic, we see growing interest from clients on making the transition
sooner. Based on current trends, we anticipate our customer migration to the cloud to continue throughout
2020 without any material disruption.
Our current software pipeline of opportunities remains healthy and we remain confident in our ability to
capture long term growth. In the near term, as a result of COVID‐19 and our customers’ ability to work
remotely, short term challenges may arise in completing transactions within timeframes that would
otherwise be considered normal. Also in the near term, some of our non‐recurring revenue streams, such
as technology consulting, implementation, education and training, are expected to be impacted as client
priorities shift during the pandemic and as in‐person meetings are restricted. We expect these services to
revert to normal levels as clients return to work.
Our Appraisal Management business is poised for healthy performance in 2020. In general, during times
of market volatility, our insights and our services are in greater demand not only from our existing clients
but from other industry participants as well. Our solutions provide transparency, performance analytics
and insights that help our clients maximize the performance of their assets. In addition, our clients are
mostly large, well‐capitalized investors that in many cases seek new investment opportunities during
market disruptions. Although we may see some temporary slowdown in new client additions, overall, we
expect to add more assets onto our platform over the longer term and may also benefit from increased
frequency of portfolio valuations as clients require more performance and operational visibility with
respect to their investments.
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